In today’s business world, mergers and acquisitions have become a daily occurrence and the size of these deals is ever growing. With these large and complex agreements, many assets are strewn together and commingled between companies, creating variable interest entities. Transactions involving variable interest entities have become increasingly common, and the relevant accounting literature is fragmented and incomplete. Companies must determine if their interest is greater than fifty percent in any variable interest entity and follow the appropriate accounting standards that are listed under FASB Interpretation No. 46(R) (FIN 46R).

This is intended to achieve more consistent application of consolidation policies to variable interest entities and, thus, to improve comparability between enterprises engaged in similar activities even if some of those activities are conducted through variable interest entities. Including the assets, liabilities, and results of activities of variable interest entities in the consolidated financial statements of their primary beneficiaries will provide more complete information about the resources, obligations, risks, and opportunities of the consolidated enterprise.

The objective of FIN 46R is not to restrict the use of variable interest entities but to improve financial reporting by enterprises involved with variable interest entities. If a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity should be included in consolidated financial statements with those of the business enterprise. The party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity is the primary beneficiary of a variable interest entity. And the primary beneficiary must consolidate a variable interest entity is of the variable interest entity.

Identifying variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity is a difficult, and sometimes brand new, task for many companies. Finding a knowledgeable business with experience dealing with FIN 46R and its applications can make the entire process much easier to handle.

We have experience in applying FIN 46R to complex international mergers and acquisitions involving hundreds of legal entities. And while compliance with FIN 46R may seem daunting, we have successfully created a logical, transparent step-by-step process for its application. Contact info@absolutebrand.com for more information.